Buy to let, invest monthly, or overpay mortgage in our situation?

[Nomoremargaritas]

Both my husband and I have recently had salary increases and we're considering taking some equity (around £50k) out of our house to buy an additional property to rent out. We'd be looking at flats around £150k to £200k. This would be a long-term investment rather than us looking to make money from it every month. I've been researching the likely monthly costs and questioning whether it actually stacks up financially.

We're in Scotland and would have to pay the additional dwelling supplement, which is 8% of the purchase price, as well as the usual stamp duty equivalent, insurances, letting agent fees etc.

Our other option would be to invest more in a stocks and shares ISA each month. Online calculators have suggested that if we invested £600 a month over 20 years we could come out with between £158,000 and £300,000, based on various growth rates.

If we bought a flat at £100k we'd have invested around £112k over 20 years, taking into account our initial deposit and the ongoing costs of being landlords. It seems unlikely the flat would rise in value enough to make a BTL a better option.

We have two young children and I'm wary about committing to an additional mortgage and all the stress of being a landlord. Is investing more the answer?

The other option would be to take the £600 and overpay our mortgage each month. The MSE calculator tells me that would shave 9 years off the mortgage, and we'd have it paid off by the time I was in my early 50s.

Lots of our friends have buy to let properties but earn more than we do. It's not so much money that a financial adviser would be interested in talking to us, and we don't have family we could ask for advice.

Any thoughts would be greatly appreciated.

Look at Money Saving Expert.

Someone who did overpay on their mortgage pointed out that the savings were quite considerable as at this stage in the mortgage you are paying a lot of interest so reduce your term by even a year or so is worth doing.

It would also be worth looking at ISA's because while you dont get tax relief putting the money in you dont pay tax taking it out and you can do whatever and whenever you want with the money.

Finally reading the runes as you are higher rate tax payers there are calls for pension Tax Relief to be restricted to the standard rate

So as others say perhaps a bit of 'mix and match'

Oh and bear in mind that by most metrics the Stock Markets are hugely overpriced................

I've just realised that your BTL calculations involve investing £600 per year into the property on top of the purchase price which is unrealistic in my experience. £300-£600 a year would cover routine maintenance but you need to factor in bigger less frequent expenses, and one bad tenant can cause a lot of damage and extra expense. If you are planning on keeping a property for 20 years + you need to be planning on replacing the bathroom and/or kitchen at some point as well as appliances such as cooker, fridge and washing machine. I've recently had to pay for electrical upgrading and may have to contribute to expensive joint building repairs despite the property being less than 40 years old.

With the very uncertain jobs market when even solid jobs are being made redundant, overpay mortgage so you can manage On a reduced income, or just once income. The safety of knowing that your housing is safe is priceless
There is a Financial Flow chart easily found on a quick search on line. Helps to plan what to do. Six months expenses in cash easy to access is the first step

I’m worried the US stock market has a huge AI bubble that will collapse at some point, which would hammer my pension and ISA so I’m wary about putting more cash in the same class of asset. I like having BTLs for a bit of portfolio diversity plus the income they provide will help pay our bills if we decide to retire before we can access pensions. When BTL investing, it all depends is the numbers work. However, I wouldn’t do BTL without a decent cash buffer in case a roof needs replaced (for example). Also recommend using a good independent management company.

In your position I'd invest the money in a way that is balanced for cash, shares, risk. All in an ISA wrapper. Maybe some in a private pension.
I would avoid BTL and wouldn't pay off the mortgage ahead of starting savings. If something happens and you need to pay the mortgage, you can draw on savings/investments.